DOJ's annual tax case summary

[Demosthenes]

FOR IMMEDIATE RELEASE TAX
MONDAY, APRIL 13, 2009 (202) 514-2007
http://WWW.USDOJ.GOV TDD (202) 514-1888
JUSTICE DEPARTMENT HIGHLIGHTS FY 2008 TAX ENFORCEMENT RESULTS
WASHINGTON - The Department of Justice Tax Division today announced highlights of its work during the past year to defend and enforce the nation’s tax laws.
The Tax Division has assisted the Internal Revenue Service (IRS) in tracking down tax cheats who use offshore accounts, combating abusive tax shelters, stopping tax defiers and shutting down tax schemes and scams. During FY 2008, the Tax Division also successfully defended refund suits against the United States representing claims of nearly $803 million, and collected, through affirmative litigation, over $178 million. The Division’s budget in that period was less than $93 million.
“It is important for the vast majority of taxpayers who pay their tax liabilities on time and in full, to know that those taxpayers who don’t will be held fully accountable, either civilly or criminally or both” said Acting Assistant Attorney General John A. DiCicco.
Combating Offshore Tax Evasion
The Tax Division has devoted significant resources this past year to combating offshore tax evasion and locating hidden offshore assets. In June 2008, Bradley Birkenfeld pleaded guilty to conspiring with an American billionaire real estate developer, Swiss bankers and his co-defendant, Mario Staggl, to help the developer evade payment of $7.2 million in taxes by assisting in concealing $200 million of assets in Switzerland and Liechtenstein.
In February 2009, the Tax Division, together with the U.S. Attorney’s Office for the Southern District of Florida, entered into an unprecedented deferred prosecution agreement (DPA) with UBS AG, Switzerland’s largest bank. As part of the agreement, UBS agreed to provide the U.S. government with the identities of, and account information for, certain U.S. customers of UBS’s cross-border business. UBS also admitted in the agreement, in great detail, how it had conspired to defraud the United States by impeding the IRS. UBS also agreed to promptly exit its cross-border business with U.S. clients, to provide continuing cooperation with the government’s investigation, and to pay the United States $780 million.
As part of its continuing review of offshore account information received, in April 2009, the Tax Division, together with the U.S. Attorney’s Office for the Southern District of Florida, charged Steven Michael Rubinstein, of Boca Raton, Fla., with filing a false income tax return. According to court records, Rubinstein, a chartered accountant, failed to disclose in his 2007 Form 1040 that he had an interest in, or signature authority over, a financial account at UBS in Switzerland. Additionally, Rubinstein failed to report the income he earned on any UBS Swiss bank accounts. According to court records, from 2001 through 2008, it is alleged that Rubinstein repatriated approximately $3 million into the United States to purchase property and build a personal residence in Boca Raton. Additionally, it is alleged that Rubinstein deposited and sold more than $2 million in South African Krugerrands through his UBS Swiss bank accounts.
The Tax Division is also seeking from UBS approximately 52,000 additional names and account information of United States taxpayers. In February 2009, the Tax Division filed United States v. UBS (S.D. Fla.), a petition to enforce an IRS summons issued to UBS to obtain this information.
Curbing High-End Tax Shelters
During the past year, the Justice Department and the IRS have continued their civil and criminal enforcement efforts against the promoters and facilitators of abusive tax shelters. Abusive shelters for large corporations and high-income individuals have cost the U.S. Treasury many billions annually, according to Treasury Department estimates. The Tax Division also has had great success in federal court defending the U.S. Treasury against tax shelter-related claims of large companies and individual investors. The Tax Division is currently litigating approximately 94 civil tax shelter cases or groups of cases. Among the successes during the past year in this area are the following:
o In September 2008, attorney Peter Cinquegrani pleaded guilty to conspiracy to commit tax fraud, aiding and abetting tax evasion, and aiding in the submission of false and fraudulent documents to the IRS, in connection with a fraudulent tax shelter called PICO.

o The Tax Division prevailed in a pair of the first LILO/SILO tax shelter cases to be tried, AWG v. United States and Fifth-Third Bank v. United States. The government victories in these civil cases helped lay the groundwork for an IRS settlement initiative in which hundreds of taxpayers settled similar cases involving tens of billions of dollars, on terms extremely favorable to the government.

o The Tax Division prevailed in Enbridge Midcoast Energy Inc. v. United States, the first so-called intermediary transaction to be decided. The decision in this civil case upheld a 20 percent penalty and will be extremely helpful in the dozens more intermediary tax shelters that are either pending in court or before the IRS, involving tens of millions of dollars.

o The Tax Division was victorious in numerous civil cases involving so-called “Son of BOSS” tax shelters, including Jade Trading LLC v. United States, Stobie Creek Investments v. United States, and Salman Ranch v. United States.

Stopping Tax Defiers
The Tax Defier Initiative, which the Tax Division announced in April 2008, targets persons who attempt to undermine our entire tax system. Tax defier cases traditionally involve individuals who spout rhetoric denying the fundamental validity of the tax laws as an excuse for not paying taxes, while also availing themselves of the benefits and rights that the United States provides to its citizens and residents. The number of tax defier cases referred for investigation or prosecution increased significantly during fiscal year 2008.
The success rate in tax defier prosecutions is very high. Some examples:
o In January 2009, Michael C. Irving (D.D.C.), a District of Columbia police officer, was sentenced to 14 months in prison, following his conviction in May 2008 of two counts of tax evasion. Irving had fraudulently arranged for the police department to stop withholding taxes on his paychecks, and had filed a 2002 tax return alleging he earned zero wages, despite earning wages of $155,211 that year.

o In September 2008, Robert B. Beale (D. Minnesota), the founder and former chief executive officer of Comtrol Corp., was sentenced to over 11 years in prison and ordered to pay a $175,000 fine, following his conviction for conspiracy to defraud the IRS and tax evasion. Beale failed to pay income tax on more than $5 million in income and used a shell corporation to conceal his income.

o In August 2008, Hamlet Bennett (D. Hawaii) was sentenced to a term of 78 months in prison and ordered to pay more than $1.3 million in restitution and $35,330 in costs of prosecution, after his conviction for tax evasion for the years 1999 through 2003. Evidence at trial revealed that Bennett purchased “products” from convicted tax offender Royal Lamar Hardy and Hardy’s organization, The Research Foundation, which promoted wide-scale “non-filing” of federal income tax returns.

o In May 2008, Louis Genard (W.D. Louisiana), a dentist, was sentenced to 30 months in prison and ordered to pay $155,683 in restitution, following his conviction on three counts of willful failure to file income tax returns. Genard had claimed that he revoked his U.S. citizenship and declared himself a "citizen of the Republic of Louisiana."

o In April 2008, the court sentenced actor Wesley Snipes (M.D. Fla.), to three years in prison; co-defendants Eddie Kahn and Douglas Rosile received 10 years and four and a half years, respectively.

Halting the Promotion of Tax Fraud Schemes
Because ongoing tax scams cause continuing harm to the U.S. Treasury and leave participants owing taxes, interest, and often, penalties, the government does not wait until a criminal case has been developed to take action to stop the scam. Rather, the Justice Department brings civil injunction suits to stop both the promotion of tax scams and the preparation of false or fraudulent returns. In appropriate cases, the Justice Department brings criminal charges against the promoters, preparers and scam participants to punish them for their unlawful conduct.
In the past decade, the Justice Department has sought and obtained injunctions against over 300 promoters of tax fraud schemes, including a record 71 promoters in fiscal year 2008. These injunctions have stopped promoters from selling tax evasion schemes on the Internet, at seminars, or though other means. The tax scam promoters the government has sought to enjoin have cost the U.S. Treasury several billion dollars, and have had hundreds of thousands of customers. Among the government’s results in this area are:
o In November 2008, a federal court in California ordered Edwin Lichtig III and his firm, GSL Advisory Solutions, to stop promoting unlawful tax fraud schemes involving Individual Retirement Accounts (IRAs) that helped customers improperly avoid federal income tax on tens of million of dollars.

o In October 2008, a federal court in California ordered Scott Cathcart to stop promoting a so-called “90 Percent Stock Loan” program that falsely purported to enable customers to avoid paying income tax on any capital gains, by treating the sale of appreciated stocks or other securities as a loan, in a scheme that allegedly cost the government hundreds of millions in lost tax dollars.

o In May 2008, a federal court in Florida shut down Pinnacle Quest International, which the court found knowingly sponsored “tax fraud trade shows” at offshore locations.

Further details about these and other tax enforcement cases are available on the Tax Division’s Web site http://www.usdoj.gov/tax/, on the IRS’s Web site http://www.irs.gov/, and on the IRS Criminal Division’s Web site http://www.ustreas.gov/irs/ci/.
The Justice Department encourages anyone who has information about suspected tax fraud to report it to the IRS Web site at http://www.irs.gov and click on the links “Contact IRS” and “How Do You Report Suspected Tax Fraud Activity.”